Francesc Riverola,
Michael Greenberg, Founder at Forex Magnates just send me his view about my last post
Retail Forex Industry - Where Are You Heading To?
Here you have Michael’s view:
Francesc,
It’s an interesting article.
Though I have to disagree with several statements. Here are the main points I’d like to argue:
Maturity: The industry is indeed in its maturity stage. But in the US and Western Europe only. Middle East, Asia and Australia are booming and there is much to grab there.
Volatility: I have no idea how can anyone expect a higher or a lower volatility in 2010. The one expecting a higher volatility in 2010 has 50% chance of being right.
Brokers going public: It remains to be seen how successful Gain’s IPO is going to be and how the stock price will behave in the ensuing weeks and months. But this doesn’t mean that 3 more brokers will go public.
There is a reason why Gain is going public in this very volatile period and this is because it is backed by Venture Capital firms. These firms HAVE TO liquidate their investments sooner or later in order to pay back their investors and therefore they push their firms to an ‘exit’. The only other firm to receive a similar investment is Oanda. I doubt if any other brokers will go public any time soon.
M&A: I also don’t believe that the M&A stage is approaching - most of Forex brokers over evaluate themselves and there are not too many of them anyway. In this climate massive M&A process is simply not going to happen. There is also not a lot of sense in acquiring a broker completely (too many question marks) - there is much more sense in acquiring its clients when it goes out of business or moves offshore. Just like what FXCM did very successfully recently.
Education: What is happening now, and is going to dramatically change the brokers landscape, is the increased education that the traders are receiving and demanding. If a few years ago a trader, any trader, just clicked a banner and started trading right now they research the subject first, then research all they can about their chosen broker and only then sign up and trade. This affects their losses, the cost of their acquisition and forces the industry to shift to more transparent way of doing business. Subsequently STP/ECN execution methods, which were only available to very large and sophisticated investors, are available and much more accessible to any retail trader.
When the same educational practices reach Middle East and Asia too most of the small bucketshops will go out of business. Here is the big short term opportunity for scammers and long term opportunity for fair brokers.
Forex Portals: I’m surprised that the acquisitions in the Forex portals market haven’t happened yet but I’m sure this is an ongoing process. The only reason I can think of is the exact reason I gave above about the forex brokers M&A process: Here too the portal owners overestimate their valuations and there aren’t too many of independent portals anyway.
My advise to portal owners (Francesc it’s a hint ;)) - if you get a nice offer with nice multiples - take it. Nobody is going to come back with x2 offer because it losses any economic sense.
Michael Forex Magnates